| Private investors seek business investments with a good opportunity for growth. These decisions are based on their perceptions of the degree of risk compared to the likely rate of return on their investment. Private investors look for certain characteristics when investing in a company:
- The idea must be a viable business concept. Investors use their intuition and experience to look for products or services with a clearly defined market. However, a well-prepared business plan will improve your chances of convincing a private investor that the idea is economically viable.
- Private investors usually require at least a 25% return on their money.
- The investors like to invest in companies that they can see and that are in familiar markets. Therefore, they usually invest in local companies.
- The private investor's primary concerns are management integrity and commitment.
- Investors like the prestige of owning a piece of a business. Therefore, image is important.
- Private investors enjoy the excitement of something new and different. Their hot buttons are not just the financial rewards, but may include a sense of civic or social responsibility.
Although there may be lots of high net worth individuals that act as private investors for small businesses, no comprehensive list is available. Some of the places to discover them are:
- The 'family and friends' network is the first place to start. They may want to help because they want you to succeed.
- Professionals with discretionary capital often invest in businesses or may refer you their clients. Examples are doctors, dentists, lawyers, accountants, architects, and consultants. Find lists of these professionals in the Yellow Pages and the membership directories of the many professional associations.
- Any existing or potential suppliers may be a source for capital. Their motive may be to tie your business to their service or product.
- Customers may provide investment capital, particularly if they depend on your product or service in order to produce their product or service.
- Employees can be investors as well. Employee stock options can create an incentive for your employees to want the company to do well.
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